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EX-32 - CEO & CFO SECTION 906 CERTIFICATION - AMERICAN SOIL TECHNOLOGIES INCex32.txt
EX-31.1 - CEO SECTION 302 CERTIFICATION - AMERICAN SOIL TECHNOLOGIES INCex31-1.txt
EX-31.2 - CFO SECTION 302 CERTIFICATION - AMERICAN SOIL TECHNOLOGIES INCex31-2.txt

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the quarterly period ended March 31, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                        Commission File Number: 000-22855


                        AMERICAN SOIL TECHNOLOGIES, INC.
        (Exact name of small business issuer as specified in its charter)

           Nevada                                               95-4780218
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                               Identification No.)

                12224 Montague Street, Pacoima, California 91331
                    (Address of principal executive offices)

                                 (818) 899-4686
                           (Issuer's telephone number)

                                       N/A
              (Former name, former address and former fiscal year,
                         if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]                        Accelerated filer [ ]
Non-accelerated filer [ ]                          Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell Company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of May 14, 2010, the number of shares of common stock issued and outstanding
was 68,090,590.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

INDEX Page Number ------ PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) 3 Consolidated Balance Sheets - March 31, 2010 and September 30, 2009 3 Consolidated Statements of Operations - For the three and six months ended March 31, 2010 and 2009 4 Consolidated Statements of Cash Flow - For the six months ended March 31, 2010 and 2009 5 Consolidated Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Qualitative and Quantitative Disclosures About Market Risk 15 Item 4. Controls and Procedures 15 Item 4T. Controls and Procedures 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 Item 1A. Risk Factors 16 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 17 Item 6. Exhibits 17 SIGNATURES 18 2
PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AMERICAN SOIL TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, September 30, 2010 2009 ------------ ------------ Assets Current assets Cash and cash equivalents $ 21,208 $ 13,604 Accounts receivable, net of allowance of $38,538 and $38,538 at March 31, 2010 and September 30, 2009, respectively 20,023 16,648 Inventories 60,668 70,227 Prepaid expenses and other current assets 22,078 19,589 ------------ ------------ Total current assets 123,975 120,068 Property and equipment, net 63,436 78,824 Deposits and other assets -- 256 Intangible assets 187,092 212,038 ------------ ------------ Total assets $ 374,505 $ 411,186 ============ ============ Liabilities and Stockholders' Deficit Current liabilities Accounts payable $ 851,344 $ 802,095 Due to related parties 342,347 318,212 Accrued liabilities 1,350,680 1,080,031 Deferred Revenue 23,937 -- Notes payable 1,919,585 1,924,039 Capital lease obligations 13,551 19,261 Notes payable to related parties 1,087,699 1,003,474 ------------ ------------ Total current liabilities 5,589,143 5,147,112 Capital lease obligations -- 3,527 Notes payable -- 125,000 ------------ ------------ Total liabilities 5,589,143 5,275,639 ------------ ------------ Stockholders' deficit Series A preferred stock, $0.50 stated value, 25,000,000 shares authorized, 2,763,699 shares issued and outstanding at March 31, 2010 and September 30, 2009, respectively 1,381,849 1,381,849 Common stock, $0.001 par value, 100,000,000 shares authorized, 68,090,590 and 60,965,590 shares issued and outstanding at March 31, 2010 and September 30, 2009, respectively 68,091 60,966 Additional paid-in capital 19,778,184 19,514,437 Accumulated deficit (26,442,762) (25,821,705) ------------ ------------ Total stockholders' deficit (5,214,638) (4,864,453) ------------ ------------ Total liabilities and stockholders' deficit $ 374,505 $ 411,186 ============ ============ See accompanying Notes to Consolidated Financial Statements. 3
AMERICAN SOIL TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Three Months Six Months Six Months Ended Ended Ended Ended March 31, March 31, March 31, March 31, 2010 2009 2010 2009 ------------ ------------ ------------ ------------ Revenue $ 41,329 $ 68,650 $ 51,587 $ 134,215 Cost of goods sold (excluding amortization of intangible assets) 14,955 32,896 21,786 61,040 ------------ ------------ ------------ ------------ Gross profit 26,374 35,754 29,801 73,175 ------------ ------------ ------------ ------------ Operating expenses General and administrative 270,999 310,165 570,591 544,078 Sales and marketing 434 18,731 751 39,499 Amortization of intangible assets 12,473 86,532 24,946 173,065 ------------ ------------ ------------ ------------ Total operating expenses 283,906 415,428 596,288 756,642 ------------ ------------ ------------ ------------ Loss from operations (257,532) (379,674) (566,487) (683,467) Other (income) expense Interest expense 31,230 28,070 57,776 59,835 Change in fair value of derivative liability -- (12,967) -- (11,573) Gain on sale of property and equipment (3,206) -- (3,206) 572 ------------ ------------ ------------ ------------ Loss before income taxes (285,556) (394,777) (621,057) (732,301) Provision for income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net loss $ (285,556) $ (394,777) $ (621,057) $ (732,301) ============ ============ ============ ============ Net loss per share basic and diluted $ (0.00) $ (0.01) $ (0.01) $ (0.01) ============ ============ ============ ============ Weighted average common shares outstanding used in per share calculations 68,090,590 60,965,590 67,759,069 60,965,590 ============ ============ ============ ============ See accompanying Notes to Consolidated Financial Statements. 4
AMERICAN SOIL TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Six Months Ended Ended March 31, March 31, 2010 2009 ---------- ---------- Cash flows from operating activities: Net loss $ (621,057) $ (732,301) Adjustments to reconcile net loss to net cash Gain on sale of assets (3,206) 572 Depreciation and amortization 40,333 215,619 Stock-based compensation 145,872 21,414 Change in derivative liabilities -- (11,573) Amortization of debt discount -- 3,078 Changes in operating assets and liabilities: Accounts receivable (3,374) 24,486 Inventory 9,559 36,371 Prepaid expenses and other assets (2,233) 3,474 Accounts payable 49,249 214,444 Due to related parties 24,135 -- Deferred revenue 23,937 -- Accrued expenses 270,649 194,318 ---------- ---------- Net cash used in operating activities (66,136) (30,098) ---------- ---------- Cash flows from investing activities: Capital expenditures -- -- Proceeds from sale of assets 3,206 -- ---------- ---------- Net cash provided by investing activities 3,206 -- ---------- ---------- Cash flows from financing activities: Proceeds from related party notes 84,225 55,000 Payments on capital lease obligations (9,237) (7,845) Repayments on related party notes payable -- (5,588) Repayments on notes payable (4,454) (11,572) ---------- ---------- Net cash used in financing activities 70,534 29,995 ---------- ---------- Net decrease in cash and cash equivalents 7,604 (103) Cash and cash equivalents at beginning of period 13,604 6,286 ---------- ---------- Cash and cash equivalents at end of period $ 21,208 $ 6,183 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ -- $ 10,649 ========== ========== Cash paid during the period for income taxes $ -- $ -- ========== ========== Supplemental disclosure of non-cash investing and financing activities: Conversion of debt and accrued interest into common stock $ (125,000) $ -- ========== ========== See accompanying Notes to Consolidated Financial Statements. 5
AMERICAN SOIL TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 (UNAUDITED) 1. BUSINESS The Company is primarily engaged in the marketing of polymer and other soil amendments to the agricultural turf and horticulture industries. The Company's products are used to decrease water usage, increase nutrient retention in soil, enhance seed germination and sprout emergence, clarify ponds and increase the effectiveness of chemical fertilizers and biological additives. In 2006, the Company acquired the patent to a slow release fertilizer. The Company also has exclusive license rights to the use of patented polymer application techniques, as well as numerous patents on a unique machine designed to inject polymer and other liquid products into existing turf and some crops. The Company also expanded to provide next-generation and sustainable fertilizers thru the acquisition of Smart World Organics, Inc. ("Smart World") on December 20, 2006. Simultaneously, the Company entered into an Intellectual Property Purchase Agreement with the founder of Smart World, Ray Nielsen ("Nielsen") that included certain formulas originally believed to be proprietary and intellectual properties used in the business of Smart World. The formulas acquired from Nielsen were deemed not to be proprietary and subsequently deemed to have little or no value. Smart World sells homogenized fertilizers, non-toxic insect controls, plant protectants, seed, and soil and silage inoculants. Smart World also provides advanced, custom-formulated products built to suit unusual growing conditions and environments. Due to losses incurred in 2008, management terminated Smart World employees and seeks to operate through commission-based sales representatives. Additionally, the Company has several debt obligations that are past the contractual maturity date or are due and payable due to non payment of interest. 2. GOING CONCERN AND MANAGEMENT'S PLAN The Company has sustained significant losses and has an accumulated deficit of $26,422,762 and negative working capital of $5,465,167 as of March 31, 2010. The ability of the Company to continue as a going concern is dependent upon obtaining additional capital and financing, and generating positive cash flows from operations. The Company intends to seek additional capital either through debt or equity offerings and is attempting to increase sales volume and operating margins to achieve profitability. Due to the current economic environment and the Company's current financial condition, management cannot be assured there will be adequate capital available when needed and on acceptable terms. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 6
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements of the Company are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2009 as reported in the Company's Form 10-K have been omitted. The results of operations for the three and six month periods ended March 31, 2010 and 2009 are not necessarily indicative of the results to be expected for the full year. All accounts and intercompany transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the Company's financial position, results of operations and cash flows. These statements should be read in conjunction with the financial statements and related notes which are part of the Company's Annual Report on Form 10-K for the year ended September 30, 2009. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company's significant estimates made in connection with the preparation of the accompanying financial statements include the valuation of inventories, carrying value of the intangible assets, valuation of stock options, and the valuation of the derivative liability. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate in accordance with Accounting Standards Codification ("ASC") 250 - Accounting Changes and Error Corrections, formally Statement of Financial Accounting Standards ("SFAS") No. 154, "Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3". CONCENTRATION OF CREDIT RISK Accounts receivable from individual customers representing 10% or more of the net accounts receivable balance consists of the following as of March 31: 2010 2009 ---- ---- Percent of accounts receivable 100% 53% Number of customers 4 3 7
Sales from individual customers representing 10% or more of sales consist of the following customers for the three months ended March 31: 2010 2009 ---- ---- Percent of sales 82% 59% Number of customers 3 2 Sales from individual customers representing 10% or more of sales consist of the following customers for the six months ended March 31: 2010 2009 ---- ---- Percent of sales 75% 69% Number of customers 3 3 As a result of the Company's concentration of its customer base, the loss or cancellation of business from, or significant changes in scheduled deliveries of product sold to the above customers or a change in their financial position could materially and adversely affect the Company's consolidated financial position, results of operations and cash flows. NET LOSS PER SHARE Basic net loss per share is calculated by dividing net loss by the weighted average common shares outstanding during the period. Diluted net loss per share reflects the potential dilution to basic net loss per share that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the weighted average fair value of our common shares during the period. For each period presented, basic and diluted net loss per share amounts are identical as the effect of potential common shares is antidilutive. The following is a summary of outstanding securities which have been excluded from the calculation of diluted net loss per share because the effect would have been antidilutive for the six months ended March 31: 2010 2009 --------- --------- Series A convertible preferred stock 2,763,699 2,763,699 Convertible debt -- -- --------- --------- 2,763,699 2,763,699 ========= ========= RECENT ACCOUNTING PRONOUNCEMENTS In October 2009, the FASB issued ASU No. 2009-13, MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS--a consensus of the FASB Emerging Issues Task Force, codified into ASC 605 REVENUE RECOGNITION which provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling 8
price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. ASU No. 2009-13 is effective beginning of the Company's fiscal year, or October 1, 2009. This standard will not have a significant impact on the Company's operating results based on current revenue generating activities. In January 2010, the Financial Accounting Standards Board ("FASB") amended authoritative guidance for improving disclosures about fair-value measurements. The updated guidance requires new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The guidance also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. The guidance became effective for interim and annual reporting periods beginning on or after December 15, 2009, with an exception for the disclosures of purchases, sales, issuances and settlements on the roll-forward of activity in Level 3 fair-value measurements. Those disclosures will be effective for fiscal years beginning after December 15, 2010 and for interim periods within tho se fiscal years. The Company does not expect that the adoption of this guidance will have a material impact on the financial statements. 4. INVENTORIES Inventories consist of the following at: March 31, September 30, 2010 2009 -------- -------- Raw materials $ 42,595 $ 64,818 Finished goods 18,073 5,408 -------- -------- $ 60,688 $ 70,227 ======== ======== 5. ACCRUED EXPENSES Accrued expenses consist of the following at: March 31, September 30, 2010 2009 ---------- ---------- Interest $ 302,555 $ 282,349 Interest to related parties 125,578 101,427 Compensation and related 922,547 696,255 ---------- ---------- $1,350,680 $1,080,031 ========== ========== 9
6. NOTES PAYABLES AND RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS During the quarter ended March 31, 2010, Ms. Visco loaned the Company an additional $35,725. This note was consolidated with a note issued in December 2009 to Ms. Visco for $739,950, and accordingly the previous note has been superseded. The new note is for a total of $775,675. The principal is due on January 11, 2011. Interest is payable monthly based upon the prime rate. NOTE PAYABLE On October 8, 2009, a third party investor converted a promissory note with an outstanding balance of $125,000 into 3,125,000 shares of common stock at the contractual exercise price $0.04 per share. 7. COMMON STOCK STOCK OPTIONS As of March 31, 2009, there were 1,996,999 stock options outstanding with a weighted average exercise price of $0.19 and a remaining contractual life of 2.50 years. Stock option expense for the quarters ending March 31, 2010 and 2009 was $8,936 and $10,669, respectively which is included in general and administrative expenses in the accompanying Statement of Operations. On October 8, 2009, the Company issued 3,125,000 shares of common stock for settlement of a note. See Note 6. On October 9, 2009, the Company issued 4,000,000 shares of common stock at $0.032 per share to officers and directors for services rendered. The shares were immediately vested and accordingly, the Company valued the shares based on the Company's stock price on the date of grant. 8. LITIGATION On or about September 21, 2007, Stockhausen, Inc. ("Stockhausen") filed a Complaint in the United States District Court, for the Middle District of North Carolina, against us seeking damages. Stockhausen alleges that we breached an agreement with them by failing to pay for goods purchased and failing to purchase a minimum quantity of goods. We believe that Stockhausen provided Defective products and waived any minimum purchase requirements. Stockhausen is seeking a judgment in the amount of $188,180 plus interest and lost profits in an unspecified amount, along with costs and attorneys fees. We filed an Answer to the Complaint and a Cross-Complaint against Stockhausen on November 14, 2007. Stockhausen has filed a motion to strike our answer and counterclaim which has been recommended to the judge by the magistrate. We have filed a brief in opposition as well as an explanation of damages and are awaiting the court's decision. On April 2, 2010 the judge ruled in the Company's favor and denied the motion filed by the Plaintiff. The matter will now proceed to trial or settlement. On or about October 4, 2007, Raymond J. Nielsen and Cheryl K. Nielsen (collectively, "Plaintiffs"), filed a Complaint in the Circuit Court in the Sixth Judicial District of Pasco County, Florida, against us and Smart World (collectively "Defendants") seeking damages, declaratory, and injunctive relief. Plaintiffs allege that Defendants failed to pay interest when due on the Convertible Debenture from Defendants to Plaintiffs and, thus, the entire amount of the Convertible Debenture is accelerated and Plaintiffs are seeking a judgment in the amount of $1,500,000 plus interest. On December 29, 2009, the 10
matter was settled for $400,000 and the Company has 60 days in which to remit the amount or a judgment in the entire amount claimed will be entered against us. The Company was not able to meet the terms of the settlement and have been actively communicating with the Plaintiffs to extent the terms of the settlement. 8. SUBSEQUENT EVENT In April 2010, Diana Visco loaned the Company $14,167 to fund certain operating expenses of the Company. The amount is due upon demand and added to previous notes discussed in Note 6. On May 13, 2010, Carl P. Ranno loaned the Company $6,000 for operations which is due upon demand. 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report. FORWARD-LOOKING STATEMENTS The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may," "could," "expect," "estimate," "anticipate," "plan," "predict," "probable," "possible," "should," "continue," or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. OVERVIEW We develop, manufacture and market cutting-edge technology that decreases the need for water and improves the soil in the "Green Industry" consisting of agriculture, turf and horticulture. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, our selected financial information: Six Months Ended Six Months Ended March 31, 2010 March 31, 2009 -------------- -------------- (Unaudited) (Unaudited) STATEMENT OF OPERATIONS DATA: Revenue $ 51,587 $ 134,215 Net Loss (621,057) (732,301) Net Loss per Share $ (0.01) $ (0.01) March 31, 2010 September 30, 2009 -------------- ------------------ (Unaudited) (Audited) BALANCE SHEET DATA: Current Assets $ 123,975 $ 120,068 Total Property & Equipment, Net 63,436 78,824 Intellectual Property, Net 187,092 212,038 Net Deferred Tax Asset -- -- Total Assets 374,505 411,186 Total Current Liabilities 5,589,143 5,147,112 Accumulated Deficit $(26,442,762) $(25,821,705) 12
SIX MONTHS ENDED MARCH 31, 2009 (UNAUDITED) COMPARED TO SIX MONTHS ENDED MARCH 31, 2009 (UNAUDITED) REVENUES Revenues for the six months ended March 31, 2010 were $51,587 compared to $134,215 for the six months ended March 31, 2009, a decrease of 62%. This decrease in revenue is a direct result of the lack of capital necessary to promote our products and the continuing effect of our decline in linear polymer business caused by defective product received from our linear polymer supplier. We are in litigation with our former linear polymer supplier and have commenced settlement negotiations. We continue to lose linear polymer sales because of reluctance by our customers to purchase product from us over concerns about receiving defective product. COST OF SALES Cost of goods sold decreased to $21,786 for the six months ended March 31, 2010 from $61,040 for the six months ended March 31, 2009. The decrease in the cost of sales is the result of the decrease revenues during this period. Our gross margins were 58% and 55% for the six months ended March 31, 2010 and 2009, respectively. The increase in our gross margins was due to the reduction in cost of sales during six months ending March 31, 2010. OPERATING EXPENSES Operating expenses decreased 21% to $596,288 from $756,642 for the six month period ended March 31, 2010 and 2009, respectively. This decrease in operating expenses was a result in decreased operations. Our amortization expense decreased to $24,946 for the six months ended March 31, 2010 from $173,065 for the six months ended March 31, 2009 due to impairment of certain intangible assets as of September 30, 2009. NET LOSS We experienced a net loss from operations of $621,057 for the six months ended March 31, 2010 as compared to a net loss of $732,301 for the six months ended March 31, 2009. Our sales and marketing expenses decreased from $39,499 in the six months ended March 31, 2009 to $751 for the six months ended March 31, 2010. The decrease in the net loss is directly related to a reduction in certain staff and reduced operations. Revenue from the sale of products decreased from $134,215 for the six months ended March 31, 2009 to $51,587 for the six months ended March 31, 2010. This decrease in revenue is a direct result of lack of capital preventing proper sales support and ability to promote our products, as well as the continuing effect of defective product received in prior periods as discussed above. SEASONALITY Our efforts in the United States have focused on the southern states and therefore generally experience year round growing cycles, with the sale of the agricultural products preceding the growing cycle of various crops. International sales have not been sufficient enough or the geographic 13
distribution of sales concentrated enough to determine if a seasonal trend exists although the initial indication is that our markets will become diverse and therefore not indicate significant seasonal variations. As we expand into the residential and commercial segments nationally, we will experience some seasonal declines in sales during the fall and winter quarters in less temperate climates. As we expand into the hydroponics organic market, we should experience a significant lessening of seasonal variations. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $21,208 and $6,183 at March 31, 2010 and March 31, 2009, respectively. Net cash used in operations was $66,136 for the period ended March 31, 2010 compared to net cash provided by operations of $30,098 for the comparable period ended March 31, 2009. We have historically relied upon one of our officers and significant shareholders to provide cash to meet short term operating cash requirements. At March 31, 2010, the outstanding balance of the debentures was $3,007,285. These convertible debentures consisted of: a) $1,500,000, 8% per annum convertible debentures at the closing price on the day immediately preceding the day of conversion which is currently in default and in dispute; (b) various debentures totaling $419,586 with interest per annum from 8-10%; (c) a loan from an officer and shareholder for $775,675.bearing interest at prime; (d) various loans from related parties totaling $312,024 bearing interest from prime to 12% Interest expense for the six months ended March 31, 2010 and 2009 was $57,776 and $59,835, respectively. We have a working capital deficit $5,465,167 as of March 31, 2010 compared to working capital deficit of $5,027,044 as of September 30, 2009. Our increase in current liabilities is directly related to an increase in our notes payable, accounts payable and accrued liabilities. As shown in the accompanying financial statements, we have incurred an accumulated deficit of $26,442,762 and a working capital deficit of approximately $5,465,167 as of March 31, 2010. Our ability to continue as a going concern is dependent on obtaining additional capital and financing and operating at a profitable level. We intend to seek additional capital either through debt or equity offerings and to increase sales volume and operating margins to achieve profitability. Our working capital and other capital requirements during the next fiscal year and thereafter will vary based on the sales revenue generated. We will consider both the public and private sale of securities and/or debt instruments for expansion of our operations if such expansion would benefit our overall growth and income objectives. Should sales growth not materialize, we may look to these public and private sources of financing. There can be no assurance, however, that we can obtain sufficient capital on acceptable terms, if at all. Under such conditions, failure to obtain such capital likely would at a minimum negatively impact our ability to timely meet our business objectives. Our auditors issued an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern in our most recent 10K for the year ended September 30, 2009. 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) of the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. For the year ended September 30, 2009, the Chief Executive Officer had evaluated the effectiveness of our disclosure controls and procedures and had determined that asset recoverability analysis needs to be improved. In response to this deficiency, we hired a financial expert to assist us in improving our disclosure controls and procedures. We believe that the changes implemented enabled the Company to improve its timely reporting of the required assessment analysis and related disclosures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2010. There has been no other change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. ITEM 4T. CONTROLS AND PROCEDURES Not applicable 15
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On or about September 21, 2007, Stockhausen, Inc. ("Stockhausen") filed a Complaint in the United States District Court, for the Middle District of North Carolina, against us seeking damages. Stockhausen alleges that we breached an agreement with them by failing to pay for goods purchased and failing to purchase a minimum quantity of goods. We believe that Stockhausen provided Defective products and waived any minimum purchase requirements. Stockhausen is seeking a judgment in the amount of $188,180 plus interest and lost profits in an unspecified amount, along with costs and attorneys fees. We filed an Answer to the Complaint and a Cross-Complaint against Stockhausen on November 14, 2007. Stockhausen has filed a motion to strike our answer and counterclaim which has been recommended to the judge by the magistrate. We have filed a brief in opposition as well as an explanation of damages and on April 2, 2010 the court ruled in our favor. The matter will now proceed to either settlement or trial. On or about October 4, 2007, Raymond J. Nielsen and Cheryl K. Nielsen (collectively, "Plaintiffs"), filed a Complaint in the Circuit Court in the Sixth Judicial District of Pasco County, Florida, against us and Smart World (collectively "Defendants") seeking damages, declaratory, and injunctive relief. Plaintiffs allege that Defendants failed to pay interest when due on the Convertible Debenture from Defendants to Plaintiffs and, thus, the entire amount of the Convertible Debenture is accelerated and Plaintiffs are seeking a judgment in the amount of $1,500,000 plus interest. On December 29, 2009, the matter was settled for $400,000 and the Company has 60 days in which to remit the amount or a judgment in the entire amount claimed will be entered against us. The Company was not able to meet the terms of the settlement and have been actively and successfully communicating with the Plaintiffs to extent the terms of the settlement. To the best knowledge of our management, there are no other legal proceedings pending against us. ITEM 1A. RISK FACTORS Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16
ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS The following Exhibits are filed herein: No. Title --- ----- 31.1 Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 17
SIGNATURES In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, duly authorized. DATED: May 17, 2010 AMERICAN SOIL TECHNOLOGIES, INC. By: /s/ Carl P. Ranno ------------------------------------- Carl P. Ranno Its: President, Chief Executive Officer, Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) 1